Facebook is initiating an advertising exchange that will let advertisers reach their target audience via the Facebook site.

Facebook Exchange will be a new revenue boosting measure for Facebook, one that is sure to parlay investor fears, to some extent; especially after the company’s turbulent Facebook IPO late last month.

Here’s how Facebook Exchange works: suppose you’re browsing a travel site to check flights to Heathrow but you don’t end up purchasing one. The travel site can drop a cookie into your browser, and now, when you return to Facebook, you will be “retargeted” to see display ads for discounted tickets to London.

Retargeting is nothing new; but it’s a first for Facebook, which has never before allowed ad companies (that gather data on brands and services) to market to users within the Facebook platform. YouTube is an example of a platform that’s already retargeting its viewer base.

Retargeting is a powerful technology that creates top-of-mind awareness for a brand and can drive highly targeted consumers (ones that have been searching for your product or service already) to your site through traditional display banner ads. By use of a cookie, ads are shown only to potential customers who have already expressed interest in the respective product or service. Cookies are nothing new either; advertisers have been using them consistently to keep tabs on buyer behavior.

A move towards retargeting could be very lucrative for Facebook because of its billion users per month, most of who spend hours on their Facebook accounts. Forbes Magazine explained: “No longer will those hours be lost to advertisers. What’s more, recent browsing data may be more of an indication of intent to purchase a product or service than stated interests or Likes–or at least advertisers may think so–so the ads may be more successful than some of the targeting currently available on Facebook.”

Some have remarked that Facebook Exchange is a lot like AdSense but Facebook denies any intention to copy the AdSense model. Some of the ad companies approved to join the Facebook Exchange are AdRoll, AppNexus, DataXu, MediaMath, TellApart, TheTradeDesk, Triggit, and Turn. It did not invite Google’s DSP InviteMedia, nor is there any information that they intend to join.

Facebook’s decision to move toward a retargeting model will allow it to raise rates on its almost limitless ad space. Therefore, if Facebook Exchange works, it would certainly be a boost to the company’s revenues. That said, there are already privacy concerns raised amongst Facebook users –it’s hard to keep both clients and investors happy.